The advice of Credit Suisse Group AG (VTX:CSGN) announced that it will pay a dividend of CHF 0.10 per share on May 11. This payout means the dividend yield will be 1.4%, which is below the industry average.
Check out our latest Credit Suisse Group analysis
Credit Suisse Group distributions could be difficult to sustain
The dividend yield is a little low, but the sustainability of payouts is also an important part of valuing an income stock. Credit Suisse Group does not generate a profit, but its free cash flow easily covers the dividend, leaving plenty to reinvest in the business. We generally think cash flow is more important than accounting measures of earnings, so we’re pretty comfortable with the dividend at that level.
Assuming the trend of recent years continues, EPS will increase by 39.9% over the next 12 months. While it’s good to see revenue moving in the right direction, it still looks like the business won’t achieve profitability. The positive free cash flow, however, reassures us that the dividend could continue to be supported.
The company’s dividend history has been marked by instability, with at least 1 cut in the past 10 years. Since 2012, the first annual payment was CHF 1.30, compared to CHF 0.10 for the last annual payment. The dividend fell by 92% over this period. Falling dividends are generally not what we are looking for, as they may indicate that the company is facing some challenges.
The company could face some challenges to increase the dividend
Given that dividend payments have shrunk like a glacier in a warming world, we need to check if there are any bright spots on the horizon. Credit Suisse Group has impressed us by increasing EPS by 40% per year over the past five years. Although the company is not yet making a profit, it is growing at a good pace. If the business can turn a profit relatively quickly, we can see it becoming a reliable income stock.
Overall, it’s good to see a consistent dividend payout, but we believe that over the longer term, the current level of payout may be unsustainable. Payouts haven’t been particularly steady and we don’t see huge upside potential, but with the dividend well covered by cash flow, it could prove reliable in the short term. We would be a bit cautious to rely on this stock primarily for dividend income.
Investors generally tend to favor companies with a consistent and stable dividend policy as opposed to those with an irregular one. Meanwhile, despite the importance of dividend payments, these are not the only factors our readers should be aware of when evaluating a company. For example, we chose 2 warning signs for Credit Suisse Group that investors should be aware of before committing capital to this security. Isn’t Credit Suisse Group quite the opportunity you’ve been looking for? Why not check out our selection of the best dividend stocks.
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